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Signet Jewelers Up 24% Since Earnings: Will it Gain Further?

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Its been more than 10 days since Signet Jewelers Limited (SIG - Free Report) came up with second-quarter fiscal 2018 results and the stock is still rallying. In fact, the recent increase in share price is a huge sigh of relief for investors as the stock has been out of favour for quite some time. Let’s delve deeper and find out the factors aiding the surge.

Sturdy Q2 Results & Upbeat View

Shares of Signet Jewelers, which have witnessed a sharp decline of 20.7% in a year, compared with the industry’s gain of 10.8% took a sharp U-turn following the earnings. Ever since, the company reported quarterly numbers on Aug 24, its shares have gained nearly 24%. The bullish run helped it outperform the industry in the past three months. The stock has gained 19.3%, compared with the industry’s gain of 5.9%.

Signet Jewelers reported robust financial numbers in second-quarter fiscal 2018, after missing both top and bottom lines in the preceding quarter. Notably, this marked the second time in the past eleven quarters, wherein sales surpassed the Zacks Consensus Estimate. The company’s second-quarter earnings of $1.33 per share beat the Zacks Consensus Estimate of $1.10, and increased sharply from $1.06 reported in the year-ago quarter. Its earnings were driven by effective cost management and outsourcing of credit portfolio. Moreover, management now envisions earnings per share in the band of $7.16-$7.56 for fiscal 2018 compared with the previous estimate of $7.00-$7.40.

Strategic Initiatives to Drive Stock Further

Signet Jewelers is improving digital marketing efforts and made changes to organizational structure. The company had earlier announced that it will sell $1 billion of prime-only credit quality accounts receivable to Alliance Data Systems Corporation, as a part of its plan to outsource its in-house credit program. Recently, the company announced an agreement to acquire R2Net, which owns popular online jewelry retailer — JamesAllen.com, as well as Segoma Imaging Technologies. Valued at $328 million, the deal will combine Signet Jewelers’ retail jewelry business with R2Net’s solid digital operations. This move is in sync the company’s omni-channel transformation. The deal is likely to be concluded in third-quarter fiscal 2018.

In an effort to drive growth in the long run, Signet Jewelers has been implementing certain strategies including growth in mid-market and best in bridal. In 2014, the company completed the acquisition of Zale Corporation. Notably, the integration of Zale has not yet been concluded. In fiscal 2017, it delivered an incremental $120 million in synergies, taking the two-year total to $180 million. By the end of 2018, the company anticipates delivering another $70 million of synergies.

Moreover, the company is focusing on diversifying store base. Further, it is opening more stores at off-mall locations. In fiscal 2018, the company plans to close 165-170 stores mostly on mall based regions, while opening 90-115 fresh stores, mostly Kay off-mall. The company will invest $260-$275 million toward opening of new stores, store remodeling, information and technology advancement as well as toward improving distribution facilities.

Favorable Estimate Revisions

Following Signet’s sturdy performance, the Zacks Consensus Estimate witnessed an uptrend as analysts raised their estimates. Analysts polled by Zacks are convinced that this Zacks Rank #1 (Strong Buy) stock will see robust performance in the future as well. In the past 30 days, the Zacks Consensus Estimate for fiscal 2018 and 2019 jumped 31 and 33 cents to $7.02 and $7.43, respectively.

3 Other Retail Stocks Hogging the Limelight

Other top-ranked stocks, which warrant a look in the retail sector includes, Movado Group, Inc. (MOV - Free Report) , The Children's Place, Inc. (PLCE - Free Report) and Burlington Stores, Inc. (BURL - Free Report) . Movado Group sports the same rank as Signet, while Children's Place and Burlington Stores carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Movado Group have gained 11% in a month.

Children's Place delivered an average positive earnings surprise of 16.3% in the trailing four quarters and has a long-term earnings growth rate of 9%.

Burlington Stores delivered an average positive earnings surprise of 22.6% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

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